What is trade credit insurance and how does it improve the profitability of your business?

What is trade credit insurance and how does it improve the profitability of your business?

Credit Guarantee | October 2, 2017

Trade credit insurance is an insurance policy your company can take out in order to protect against non-payment of your debtors. The purpose of your trade credit insurance policy is to give your company much needed protection should your customers fail to pay the debts they owe you, due to insolvency, bankruptcy or protracted default – which is failure to pay within the agreed terms and conditions.

Your trade credit insurance policy will also protect your business against both commercial and political risks that are beyond your control. The insurance is oft-used for short-term account receivables, which become due within 12 months.

Simply put, it is the insurance of your debtors.

Common misconceptions of the insurance

Trade credit insurance should not be confused with products such as credit life, or credit disability insurance, which individuals obtain to protect against the risk of loss of income needed to pay their individual debts.

Trade credit insurance is offered to companies and is not available to individuals, for the purpose of insuring the risk of non-payment by foreign or domestic buyers of the company’s services or products.

The premium for this is usually charged monthly, and depending on the policy you take out, can be calculated in various ways. For example, the premium may be calculated as a percentage of sales or as a percentage of all outstanding receivables.

Get cover for your business today and trade with confidence

Credit Guarantee is a leading South African domestic and international trade credit insurer. We have a vast store of information and market intelligence to support your business – in both local and global markets.

Contact us today to get peace-of-mind and trade with confidence.

How trade credit insurance works

Say you want to conduct business on a credit basis, with a customer, it would be prudent to consider trade credit insurance, particularly if it is an unknown customer, high risk or volatile economic climate.

At Credit Guarantee, we have a well-trained team of professionals whose job is to collect information from the public domain, banks, credit bureaus and Credit Guarantee’s databases on local and overseas buyers. We monitor the financial status of your customers, advise you accordingly and cover you against their non-payment.

When you take out trade credit insurance with us, you can choose to cover against a portfolio of buyers, or get cover for a specific transaction or amount, dependent on your needs.

In the event that your customers cannot, or will not pay you, the domestic or international trade credit policy you have will cover you. Therefore, with your policy, you can trade with your customers with the peace-of-mind that you would not have without trade credit insurance in place.

Four main benefits of credit insurance

There are significant benefits to trade credit insurance. Trade receivables can represent a significant proportion of the total assets on your company’s balance sheet. Managing this effectively, therefore is key to your company’s success.

  1. Protect your cash flow

One of the main benefits is that your policy will protect your cash flow by replacing cash promptly, should any customer’s insolvency or payment default occur. This means your company can continue to run effectively and is not crippled due to the fact of non-payment from debtors.

  1. Enhance your customer relationships

We investigate each of your debtors and issue cover against them. We monitor the information and look at adverse trends. For instance, we look at insolvency, business rescue and payment delays coming through the system. We inform you of any changes in your customers that might impact their financial health and consequently, their ability to pay you for goods or services you have delivered. Our continual risk assessment and monitoring serves as an early warning and we respond accordingly and manage the risk. In this way we provide continual improvement in the quality of customers you trade with. This therefore results in a lower incidence of bad debt.

  1. Improving banking relationships and access to finance

With credit insurance, you effectually secure your debtors’ books. Banks are therefore likely to offer you more extensive credit facilities and on more favourable terms if your debtors are credit insured. Get access to the finance you need in your business, today.

  1. Supporting sales expansion

Credit insurance gives you the confidence to extend trade credit to new customers. With it, you get the absolute confidence to explore higher risk business opportunities you would normally avoid for fear of non-payment.

Manage all your trade credit risk with Credit Guarantee

At Credit Guarantee, we have a wide selection of products to insure your business against the unforeseen. By securing your debtor’s book – your largest asset, your company’s income is protected as we ensure crucial cash flow for your company’s sustainability and growth.

So why take unnecessary risks, when you can eliminate bad debt altogether? Simply insure your debtor’s payment risk with Credit Guarantee, and be secure in the knowledge that you’ll always be paid.

Credit Guarantee is a licenced financial services provider.

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